Eglantine Lioret, an expert in French tax at Pinsent Masons, the law firm behind Out-Law.com, said: "There is a risk that France's rushed implementation of its new digital tax without the agreement of other EU members will result in a law which will not be compatible with the EU principles of freedom of establishment and more generally of free competition."
The French government introduced a bill on 6 March to impose a 3% tax on revenues deemed to have been generated in France by digital companies where the user is essential for the creation of value. The tax was announced in December last year, although at that stage it was not clear what the rate of the tax would be.
"The French government has decided to take unilateral action in the face of slow progress from the EU and following other unilateral action from the UK, Spain and Austria," Lioret said.
EU proposals for a wide ranging tax on the revenues of digital companies stalled last year in the face of opposition from countries including Ireland, Sweden and Denmark. Earlier this week EU finance ministers agreed to abandon the proposal and to focus on international discussions at the OECD and G20 level. Romanian Minister Eugen Teodorovici said that if progress is not made by the end of 2020 on global efforts to revise the international tax system, the EU will revisit the issue at that time.
"The new French tax has been nicknamed 'GAFA tax' as it is thought that it could catch around 30 companies including Google, Apple, Facebook and Amazon," said Valérie Farez, another expert in French tax at Pinsent Masons.
The digital tax will catch advertising revenues from services that rely on data collected from internet users, revenues from the provision of a linking service between internet users and the sale of user data for advertising purposes.
Online sales and the digital provision of digital content for buying and selling would be expressly excluded from the tax.
It will catch businesses, wherever they are established, which make annual supplies of taxable services of more than €25 million in France and €750m worldwide.
"The double threshold is designed to limit the impact of the new tax for most French digital start-ups, but it will not help all start-ups," Valérie Farez said.
It will apply to income from 1 January 2019 and the first instalment of the tax will be due in October 2019. The digital tax will be deductible from the taxable profit for corporate income tax purposes. The bill will be examined by the National Assembly under an expedited procedure.
Last month the Organisation for Economic Cooperation and Development (OECD) published a consultation document asking for views on possible international solutions to the tax challenges arising from the digitalisation of the economy.
The consultation document set out three proposals for revising the profit allocation and nexus rules: user participation; marketing intangibles; and significant economic presence. It also contained two proposals to address global anti-base erosion by ensuring that internationally operating businesses pay a minimum level of tax, namely: an income inclusion rule; and a tax on base eroding payments. The OECD intends to produce a final report in 2020 aimed at providing a consensus-based long-term solution to the issue.
The UK has also been consulting on the design of its digital services tax which will be introduced in April 2020. This will be a 2% tax on the UK revenues of providers of social media platforms, search engines and online marketplaces.
Austria is proposing a 3% tax on the advertising revenue of technology companies. Spain and Italy are also proposing a 3% tax on digital revenue.